Susan Tompor: Fiscal-cliff debate isn't cutting jobs

December 9, 2012

Detroit Free Press Personal Finance Columnist

For now, it seems like the debate on the fiscal cliff isn't being blamed for generating too many immediate economic roadblocks. It's the down-the-road view that could prove to be iffy.

Mark Zandi, chief economist at Moody's Analytics, said in a news briefing Wednesday that the fiscal cliff debate does not appear to be driving business managers or owners to pull back on hiring at this point.

Many experts maintain that Congress ultimately will reach some sort of deal, and early economic setbacks are likely to be temporary.

So a business would not want to be handing workers pink slips in anticipation of tax hikes and federal spending cuts that would kick in Jan. 1 -- if they believe a deal could be reached a few days after that.

It would be costly, Zandi said, to lay off workers now to prepare for what could be a temporary problem.

Businesses have been more likely now to cut back on investing in computers, heavy equipment or their advertising budgets, as a stopgap in case the economy slows down, Zandi said.

"It's more like a bunny slope in the early part of January," Zandi said.

Once the calendar moves closer to February, though, Zandi warned business managers would become more fearful that Washington's policy leaders would not get it together and come up with an agreement.

Dragging into March or April with no deal would lead to a recession, Zandi said.

The fiscal cliff isn't priced into expectations of investors right now, either because many say some sort of deal could be reached that wouldn't be as fierce as the full force of the tax hikes and spending cuts.

Just when an agreement is reached -- or what kind of deal is reached -- remains far from certain. And some say there's no guarantee talks stay on course and save the economy from going over the cliff.

"I wouldn't discount stupidity in going over the edge," said John Hantz, a Detroit resident and CEO of Hantz Financial, based in Southfield.

The longer the talks drag out, the more uncertainty could be created for the stock market -- and the economy next year.

"I don't think we can talk about the economy without talking about government policy," said Dennis Stattman, portfolio manager of the BlackRock Global Allocation Fund.

Stattman noted that the federal government's tax system amounts to 17% of the nation's gross domestic product but federal spending is 24% of the country's GDP.

"Those two things cannot remain that far apart," Stattman said.

In the short term, Stattman said consumer spending on big-ticket items, such as cars, would likely be hurt if the fiscal-cliff issue creates more problems in the weeks ahead.

Down the road, though, he sees many reasons to be optimistic about auto stocks in the next few years because many U.S. consumers are driving old cars that will need to be replaced and the Chinese market offers promise.

BlackRock's Global Allocation Fund owns General Motors and Ford stock in its portfolio.

Stattman said a thoughtful resolution for the fiscal-cliff issue is necessary -- and could even create upside potential for stocks if a deal turns out to be better or sooner than expected.

Historically, December is the most bullish month for stocks and traditionally they have recorded their highest average monthly performance, according to research by Sam Stovall, chief equity analyst for S&P Capital IQ.

At this stage, investors seem to believe that Washington can pull off an agreement -- even if Congress engages in some eleventh-hour drama.

Mid-December can be a low point for the month, Stovall said, and if investors become increasingly concerned about Washington, it's possible stocks won't recover off those low points.

"Right now, most investors are saying 'Look, the economy is improving except the fiscal cliff is in the way,' " Stovall said. "I think it's very unlikely that we will fall off the cliff -- and stay off the cliff all year long."